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TB South-Western Federal Taxation 2017 Comprehensive, 40th Edition by William H. Hoffman, Jr., David M. Maloney, William A. Raabe, James C. Young

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TB South-Western Federal Taxation 2017 Comprehensive, 40th Edition by William H. Hoffman, Jr., David M. Maloney, William A. Raabe, James C. Young

Chapter 10 – Deductions and Losses: Certain Itemized Deductions

1. Personal expenditures that are deductible as itemized deductions include medical expenses, Federal income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and charitable contributions.
a. True
b. False
ANSWER: False
RATIONALE: All of the listed personal expenditures except Federal income taxes are deductible as itemized deductions.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-01 – LO: 10-01
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 2 min.

2. The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer’s filing status.
a. True
b. False
ANSWER: False
RATIONALE: The election to itemize is appropriate when total itemized deductions exceed the standard deduction based on the taxpayer’s filing status.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-01 – LO: 10-01
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 2 min.

3. Adrienne sustained serious facial injuries in a motorcycle accident. To restore her physical appearance, Adrienne had cosmetic surgery. She cannot deduct the cost of this procedure as a medical expense.
a. True
b. False
ANSWER: False
RATIONALE: Unnecessary cosmetic surgery is not deductible. However, Adrienne’s surgery restored her appearance and corrected a problem caused by the accident.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 2 min.

4. A physician recommends a private school for Ellen’s dependent child. Because of the physician’s recommendation, the cost of the private school will qualify as a medical expense deduction (subject to percentage limitations).
a. True
b. False
ANSWER: False
RATIONALE: A recommendation of a physician, although helpful, does not make the expenditure automatically deductible as a medical expense.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 2 min.

5. Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence. The appraisal fee qualifies as a deductible medical expense.
a. True
b. False
ANSWER: False
RATIONALE: The appraisal fee does not qualify as a medical expense, but it qualifies as a deduction under § 212 (related to the determination of tax liability) as a miscellaneous itemized deduction.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 2 min.

6. Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of a heart condition. If he is allowed to deduct all or part of the cost of the pool, Ed’s increase in utility bills due to the operation of the pool qualifies as a medical expense.
a. True
b. False
ANSWER: True
RATIONALE: Such expense does qualify as a medical expense.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 2 min.

7. Mason, a physically handicapped individual, pays $10,000 this year for the installation of wheelchair ramps, support bars, and railings in his personal residence. These improvements increase the value of his personal residence by $2,000. Only $8,000 of the expenditure qualifies as a medical expense for tax purposes.
a. True
b. False
ANSWER: False
RATIONALE: The full $10,000 is included as a medical expense under a special rule applicable to physically handicapped persons.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Application
OTHER: Time: 2 min.

8. Chad pays the medical expenses of his son, James. James would qualify as Chad’s dependent except that he earns $7,500 during the year. Chad may claim James’ medical expenses even if he is not a dependent.
a. True
b. False
ANSWER: True
RATIONALE: Chad may deduct the medical expenses. The gross income test is waived in determining dependency status for medical expense purposes.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 2 min.

9. Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.
a. True
b. False
ANSWER: True
RATIONALE: The joint return test is waived in determining dependency status for medical expense deduction purposes. Bill may include the $2,500 in calculating his medical expenses.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Application
OTHER: Time: 5 min.

10. In 2016, Dena traveled 600 miles for specialized medical treatment that was not available in her hometown. She paid $90 for meals during the trip, $145 for a hotel room for one night, and $15 in parking fees. She did not keep records of other out-of-pocket costs for transportation. Dena can include $179 in computing her medical expenses.
a. True
b. False
ANSWER: True
RATIONALE: Dena can deduct $114 (600 miles × 19 cents per mile) for transportation. The 19 cents per mile automatic mileage option for medical transportation does not include related parking fees and tolls, so she also can deduct the $15 paid for parking fees. She can deduct $50 for the hotel, but she cannot deduct the cost of meals. Therefore, Dena can deduct $179 ($114 + $50 + $15 = $179).
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Application
OTHER: Time: 5 min.

11. Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic. Her son stayed at the clinic for the duration of his treatment. She paid airfare of $300 and $50 per night for lodging. The cost of Maria’s airfare and lodging cannot be included in determining her medical expense deduction.
a. True
b. False
ANSWER: False
RATIONALE: A deduction is allowed for transportation and lodging expenses. In addition, Maria’s deduction for lodging is allowed, since it falls within the limit of $50 per night.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

12. In 2016, Brandon, age 72, paid $3,000 for long-term care insurance premiums. He may include the $3,000 in computing his medical expense deduction for the year.
a. True
b. False
ANSWER: True
RATIONALE: Taxpayers over age 70 may include up to $4,870 of long-term care insurance premiums in computing medical expenses.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

13. Jim’s employer pays half of the premiums on a group medical insurance plan covering all employees, and employees pay the other half. Jim can exclude the half of the premium paid by his employer from his gross income and may include the half he pays in determining his medical expense deduction.
a. True
b. False
ANSWER: True
RATIONALE: Medical coverage provided by an employer is a nontaxable fringe benefit. Premiums paid by the taxpayer may be included in determining deductible medical expenses.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

14. Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2016. He expects $5,000 of these expenses to be reimbursed by an insurance company in 2017. In determining his medical expense deduction for 2016, Matt must reduce his 2016 medical expenses by the amount of the reimbursement he expects in 2017.
a. True
b. False
ANSWER: False
RATIONALE: Unlike the casualty loss deduction, the medical expense deduction does not have to be reduced by anticipated recoveries. Matt can include all $11,000 as a medical expense in 2016.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

15. In 2017, Rhonda received an insurance reimbursement for medical expenses incurred in 2016. She is not required to include the reimbursement in gross income in 2017 if she claimed the standard deduction in 2016.
a. True
b. False
ANSWER: True
RATIONALE: The reimbursement is included in gross income only to the extent the taxpayer derived a tax benefit from deducting the expense in the previous year. Because Rhonda did not itemize in 2016, she received no tax benefit.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

16. Georgia contributed $2,000 to a qualifying Health Savings Account in the current year. The entire amount qualifies as an expense deductible for AGI.
a. True
b. False
ANSWER: True
RATIONALE: The payment to the HSA is a deduction for AGI, not an itemized medical expense deduction.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-02 – LO: 10-02
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 2 min.

17. Shirley pays FICA (employer’s share) on the wages she pays her maid to clean and maintain Shirley’s personal residence. The FICA payment is not deductible as an itemized deduction.
a. True
b. False
ANSWER: True
RATIONALE: The payment is a nondeductible personal expense.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-03 – LO: 10-03
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Knowledge
OTHER: Time: 2 min.

18. Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.
a. True
b. False
ANSWER: True
RATIONALE: As noted in the text, certain taxes are deductible and certain are nondeductible. Specified taxes (such as state income taxes and real and personal property taxes) are deductible as itemized deductions, but personal fees are not. However, fees incurred in a trade or business are deductible, but not as itemized deductions.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-03 – LO: 10-03
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 2 min.

19. A taxpayer may not deduct the cost of new curbing (relative to a personal residence), even if the construction is required by the city and the curbing provides an incidental benefit to the public welfare.
a. True
b. False
ANSWER: True
RATIONALE: Such assessments are added to the basis of the taxpayer’s property.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-03 – LO: 10-03
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 2 min.

20. Sergio was required by the city to pay $2,000 for the cost of new curbing installed by the city in front of his personal residence. The new curbing was installed throughout Sergio’s neighborhood as part of a street upgrade project. Sergio may not deduct $2,000 as a tax, but he may add the $2,000 to the basis of his property.
a. True
b. False
ANSWER: True
RATIONALE: Such assessments are added to the basis of the taxpayer’s property.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-03 – LO: 10-03
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

21. Trent sells his personal residence to Chester on July 1, 2016. He had paid $7,000 in real property taxes on March 1, 2016, the due date for property taxes for 2016. Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.
a. True
b. False
ANSWER: True
RATIONALE: The real property taxes paid by the seller (Trent) but apportioned to the buyer (Chester) is treated as reducing the amount Trent realized from the sale of the residence. Trent may not deduct the portion of the taxes related to the period Chester owned the property.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-03 – LO: 10-03
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Measurement –
AICPA: FN-Measurement
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 5 min.

22. Herbert is the sole proprietor of a furniture store. He can deduct real property taxes on his store building as a business deduction but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.
a. True
b. False
ANSWER: True
RATIONALE: Herbert may deduct the real property taxes on the store building as a business expense. However, the position of the IRS is that state and local income taxes imposed upon an individual are deductible only as itemized deductions, even if the taxpayer’s sole source of income is from a business, rents, or royalties.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CMPV.SWFT.LO: 10-03 – LO: 10-03
CMPV.SWFT.LO: 10-04 – LO: 10-04
NATIONAL STANDARDS: United States – BUSPORG: Analytic
STATE STANDARDS: United States – AK – AICPA: FN-Reporting
KEYWORDS: Bloom’s: Comprehension
OTHER: Time: 2 min.

 

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